Ford Delivers Strong Results Despite Europe Sputtering Along

by Trefis Team
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Strong performances in North America and China lifted Ford Motors‘ (NYSE:F) second quarter earnings. Total revenues jumped 15% to $38.1 billion while the net income surged 19% to $1.2 billion. Ford raised its guidance and now expects the full year profit to exceed that of 2012. During the quarter, Ford sold 16% more vehicles than the previous year quarter. [1]

In North America, selling more pickups and SUVs helped the Dearborn-based automaker widen its already impressive margins to 10.4%. The corresponding figure in the previous year stood at 10.2%. In the automotive industry, anything above 10% is considered excellent. The bulkier SUVs and pickups are generally more profitable than the small cars and compacts.

A rebound in the housing industry is fueling the growth of pickups, which are extensively used in construction activities. Ford’s EcoBoost engines helped the F-Series post a 22% jump in the volumes and maintain its lead in the pickup segment. The Escape is another model which is doing pretty well with sales up 23% through June in the U.S. Overall, Ford’s North American volumes were up 14%.

Europe Improves

Ford’s operating losses in Europe shrunk to $348 million helped by the ongoing restructuring activities. In the first quarter, the automaker posted a loss of $462 million. Ford is in the process of shutting down three plants in the region which will see a workforce reduction of 6,200 employees. Therefore, severance packages and other expenses related to restructuring will hurt the company’s profits in the near term.

Although the year started off poorly for Ford, the automaker has seen some green shoots in the region lately. Ford’s sales jumped 6.4% in Europe in June even though the total automotive market fell 6.6%. [2] In line with the recent improvements, the automaker narrowed the full year loss forecast to $1.8 billion, from $2 billion earlier.

Ford aims to become profitable in Europe by mid-decade and has already debuted eight out of the fifteen new vehicles promised as part of its turnaround plan. In the second half of the year, the automaker will also introduce the Focus Electric, the Transit Connect and the EcoSport.

See our complete analysis for Ford Motors here

China Shines

Considerable progress was made in Asia as the automaker’s operating profits swelled to $177 million, up from a loss of $66 million previously. Although Ford has posted strong volume gains in Asia in the recent quarters, profitability did not match up to the volumes. For the quarter, Ford sold 27% more vehicles in Asia-Pacific, reflecting mainly the strong performance in China, where sales were up more than 40%.

It is quite common in the automotive industry for the companies to struggle to post profits during the initial years of investment. The recent results could be a sign that Ford could be finally breaking out of the investment trap and emerging as one of the powerhouses in China. Its sales have already overtaken those of Toyota. There is still a lot of work to be done though as its sales are only one-third those of GM and Volkswagen.

Until last year, North America was carrying the weight of the company as European losses mounted and Asian operations hardly generated any cash. But now, Ford is in a much better position. Its North American profits are consolidating, the European losses are shrinking and the Asian profits are booming.

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  1. Ford 8-k []
  2. Ford sales rise 6.4% in Europe in June, bucking industry trend, July 12, 2013, []
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